The Emirates Economist

Thursday, February 28, 2008

Abu Dhabi Investment Authority comes out

After decades in the shadows, the fund, the Abu Dhabi Investment Authority, is turning heads on Wall Street and in Washington by making high-profile investments in the United States and elsewhere.

Known as ADIA (pronounced ah-DEE-ah), the fund recently formed a small team that is now buying big stakes in Western companies. This unit masterminded ADIA's $7.5 billion investment in Citigroup, the largest U.S. bank, in November. It has also taken a large position in Toll Brothers, one of America's biggest home builders.

"There is an idea that Abu Dhabi should not be the underdog of the map," said Frauke Heard-Bey, a historian who has written a book about the political emergence of the United Arab Emirates. "They have the money to buy companies that are ailing, and why should they not? Why not make a mark?"

ADIA is the largest of the world's sovereign wealth funds, giant pools of money controlled by cash-rich governments, particularly in Asia and Middle East. But Abu Dhabi, the wealthiest of the seven Arab emirates, says little about its fund. Few outsiders know for sure where ADIA invests, or even how much money it controls. And secrecy breeds hyperbole; some estimates of the fund's size exceed $1 trillion....Since ADIA's genesis in 1976, the fund has followed a conservative investment approach. It has farmed out its assets to foreign money managers and taken stakes in companies based upon their weighting in benchmark stock indexes like the Standard & Poor's 500. ADIA is also one of the largest institutional investors in hedge funds and private-equity funds. This approach has served ADIA well and reflects the strongly felt notion that the fund's ultimate purpose is to serve as a financial reserve for Abu Dhabi in times when oil revenues are less robust....With oil at about $100 a barrel, bankers and analysts estimate Abu Dhabi produces a surplus of at least $50 billion a year. Given the emirate's small population, 80 percent of which is foreign born, even the most expansive investment and welfare policies make it hard to put a dent in such a sum....People who worked at ADIA from its earliest days in the late 1970s and 1980s say that the fund's reticence dates to its formation.

Some see this as a reflection of Abu Dhabi's small size, insular culture and geographical vulnerability, a sense that the less that is known about the specifics of ADIA's hoard, the better.

"ADIA does not answer to a wide public at home," said David Mack, a former United States ambassador to the United Arab Emirates.

"They are a small country in an area with some nasty countries like Iran that can make trouble for them. They don't like to advertise."

Actually, there is a public to answer to. Part of the balancing act is to make sure the citizenry remains content with the welfare system. You might think that part of that strategy would be to keep the public ignorant of the size of the country's wealth. But you might be wrong.

Weather report for Dubai: Hot

Wednesday, February 27, 2008

The puzzle continues

How can a country as rich as the UAE turn away citizens from higher education on the basis of lack of funds? It promises free education to all citizens, but doesn't fund it:

"When the oil was priced at $8 a barrel the government had been offering generous incentives to students, now when the oil almost reached $100 a barrel, students are denied admissions due to shortage of funds. How come this happens in the UAE which is considered one of the richest countries in the world?" asked Ali Majid Al Matroushi, an FNC [Federal National Council] member from Ajman....Shaikh Nahyan Bin Mubarak Al Nahyan, Minister of Higher Education and Scientific Research, admitted that the shortage of funds "forced us to turn down admissions of 5,000 students this year and the number will be even bigger next year, when the Higher Colleges of Technology will be forced to reduce the number of seats from 16,000 to 14,000."

Shaikh Nahyan warned if no action is taken, the situation is going to get worse and the country will suffer a severe shortage of human resources that will adversely affect the economic development. He urged the private and the public sectors and businessmen to join hands to resolve this problem.

There is a parallel issue with the quality of government provided primary and secondary education. It's not up to snuff.

I'm not arguing that education is best funded and provided by government. But I am arguing that promises should be kept. And I am also suggesting that citizens should share in the oil wealth of the country.

Tuesday, February 19, 2008

Bans on heads on mannequins and salesmen of ladies undergarments

Mannequins in Sharjah shops should be headless and only model “decent” clothing, a Sharjah Municipality circular has stated.

Gulf News interviewed Khalid Al Jaberi, head of market control at Sharjah Municipality:

“We reinforced the ban because it was a religious issue that raised many complaints from residents, who were against shops displaying men and women’s undergarments on realistic mannequins,” said Al Jaberi.

He said no fines had been imposed on shops because everyone had adhered to the circular.

Sharjah Municipality originally implemented the ban five years ago following a fatwa issued by the Islamic Affairs Department.

However, the ban has been reinforced because several outlets had stopped abiding by the rule. [seems to contradict earlier paragraph]

The municipality has always been keen on conserving the traditional Islamic values of Sharjah and has already implemented several rules, including the ban on men selling women’s undergarments in shops.

When I first arrived in Sharjah in the Spring of 2002 I visited the Sharjah Art Museum -- I highly recommend it. It had an exhibit of modern art. I was struck most by the mannequin in an abaya with red finger nails and red handcuffs on her wrists. Without thinking about rules I pulled out my camera and out of nowhere stepped a guard who sterning indicated no photos allowed.

Putting a price on water

Water and electricity prices in Dubai have been revised to encourage big consumers to use less by paying more.

Currently residents pay 3 fils per gallon and will continue to do so as long they do not use more than 6,000 gallons, the price will then go up to 3.5 fils per gallon, and even 4 fils per gallon for consumers who sap more than 12,001 gallons from the tap.

4. Get into the V - With almost every shopping mall in the country decorated with red candy hearts, flowers and cuddly bears, many TV and radio commercial reminding you that it's time to remember your sweetheart, what's a single person to do?

Thursday, February 14, 2008

Answer of the day

Knowledge@Wharton: Are some countries doing things better than others, which might offer lessons to the rest of the region?

Pack: Dubai seems to have a lot of things going for it. The quality of the people in Dubai is really quite astounding. We had an Executive Education program in Philadelphia over the last year and a half for officials from Dubai, and they were spectacularly good and spectacularly well plugged into the international economy. I think that's less true in other countries. Dubai cannot provide an easy template for the other countries because it has very specific circumstances in terms of oil revenues and other things per capita. Tunisia and Morocco have done okay.

None of the Middle Eastern countries have done spectacularly well, which is very interesting. In Latin America, Chile has done extremely well. Asia for a long time had Korea and Taiwan and then were joined by a host of other countries such as China and India, and now, interestingly, Vietnam. But there have been no champions of economic growth in the Middle East. This is disappointing, and therefore, there is not a sense of confidence that if they change policies they will succeed. There is no [one] country that has done spectacularly well.

On the other hand, one has to notice that Morocco, Tunisia and Egypt have not done that badly.

But there's also something more provocative:

Knowledge@Wharton: In fact, your book says that "The neural synapses that would link the latent productive possibilities of the Arab people with the goods and services demanded by the rest of the world appear to be weak or non-existent." How can that problem be overcome?

Pack: That sentence and the "neural synapses" phrase have drawn a lot of attention. We gave several presentations in Washington at The Peterson Institute and people brought this question up very frequently.

Currently, the big issue for most of the developing countries is that they want to become part of the world trading system. A large part of this system is dominated by production and buyer networks....

The Arab economies could become part of these networks, but so far they simply have not.

For more on what the authors are saying and meaning by neural synapses this is a helpful google search. This search also produces links to papers and talks related to their book.

Paragraph of the day

Free traders have long argued that expanded trade is a force for political freedom abroad, and point to South Korea and Taiwan as proof.

In both places, exports boosted living standards for millions of workers, while expanded imports and foreign investment helped to break up entrenched elites. Autocratic governments eventually gave way to democracies.

But will sovereign-wealth funds do the same for democracy? Fans of the trade-produces-political-change argument doubt so.

Here's the sentence, though, that really caught my attention:

In many of the nations with sizable wealth funds, the money stuffs the pockets of rulers who spend on patronage or repression. A few years back, Dubai, a part of the U.A.E., gave government workers tradable vouchers, valued at more than $100,000, for discounts on condominiums being erected in massive construction projects, says Marcus Noland, who studies Arab economies at the Peterson Institute for International Economics in Washington, D.C. "The short-term effect is that you buy people off," he says.

There are a couple of points of interest. First - regarding the housing market - was it generally known that the government was in effect pumping up demand for its own building projects? Second - regarding politics - is it possible in the UAE to avoid the development of a democracy? In the case given of South Korea a middle class developed and it demanded political rights and a breakup of the autocracy. In the UAE a middle class made up of citizens is not developing; that role is taken by ex pat workers. UAE citizens are very well off and may have no desire to rock the boat as long as the rulers share the oil wealth as they have.

Wednesday, February 13, 2008

Thanks for doubling allowance

LONDON — The UAE students sent to the UK for higher studies have expressed their gratitude to the President, His Highness Shaikh Khalifa bin Zayed Al Nahyan, His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, and General Shaikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, for doubling their monthly allowances.

The American system of higher education, long the envy of the world, is becoming an important export as more universities take their programs overseas.

In a kind of educational gold rush, American universities are competing to set up outposts in countries with limited higher education opportunities. American universities — not to mention Australian and British ones, which also offer instruction in English, the lingua franca of academia — are starting, or expanding, hundreds of programs and partnerships in booming markets like China, India and Singapore.

And many are now considering full-fledged foreign branch campuses, particularly in the oil-rich Middle East. ...The demand from overseas is huge. At the University of Washington, the administrator in charge of overseas programs said she received about a proposal a week. “It’s almost like spam,” said the official, Susan Jeffords, whose position as vice provost for global affairs was created just two years ago.

About the George Mason - Ras Al Khaimah deal:

While the Persian Gulf campus of N.Y.U. is on the horizon, George Mason University is up and running — though not at full speed — in Ras al Khaymah, another one of the emirates.

George Mason, a public university in Fairfax, Va., arrived in the gulf in 2005 with a tiny language program intended to help students achieve college-level English skills and meet the university’s admission standards for the degree programs that were beginning the next year.

George Mason expected to have 200 undergraduates in 2006, and grow from there. But it enrolled nowhere near that many, then or now. It had just 57 degree students — 3 in biology, 27 in business and 27 in engineering — at the start of this academic year, joined by a few more students and programs this semester.

The project, an hour north of Dubai’s skyscrapers and 7,000 miles from Virginia, is still finding its way. “I will freely confess that it’s all been more complicated than I expected,” said Peter Stearns, George Mason’s provost.

The Ras al Khaymah campus has had a succession of deans. Simple tasks like ordering books take months, in part because of government censors. Local licensing, still not complete, has been far more rigorous than expected. And it has not been easy to find interested students with the SAT scores and English skills that George Mason requires for admissions.

“I’m optimistic, but if you look at it as a business, you can only take losses for so long,” said Dr. Abul R. Hasan, the academic dean, who is from the South Dakota School of Mines and Technology. “Our goal is to have 2,000 students five years from now. What makes it difficult is that if you’re giving the George Mason degree, you cannot lower your standards.”

Aisha Ravindran, a professor from India with no previous connection to George Mason, teaches students the same communications class required for business majors at the Virginia campus — but in the Arabian desert, it lands differently.

Dr. Ravindran uses the same slides, showing emoticons and lists of nonverbal taboos to spread the American business ideal of diversity and inclusiveness. She emphasizes the need to use language that includes all listeners.

And suddenly, there is an odd mismatch between the American curriculum and the local culture. In a country where homosexual acts are illegal, Dr. Ravindran’s slide show suggests using “partner” or “life partner,” since “husband” or “wife” might exclude some listeners. And in a country where mosques are ubiquitous, the slides counsel students to avoid the word “church” and substitute “place of worship.”

The Ras al Khaymah students include Bangladeshis, Palestinians, Egyptians, Indians, Iraqis, Lebanese, Syrians and more, most from families that can afford the $5,400-a-semester tuition. But George Mason has attracted few citizens of the emirates.

The students say they love the small classes, diversity and camaraderie. Their dorm feels much like an American fraternity house, without the haze of alcohol. Some praise George Mason’s pedagogy, which they say differs substantially from the rote learning of their high schools.

“At my local school in Abu Dhabi, it was all what the teachers told you, what was in the book,” said Mona Bar Houm, a Palestinian student who grew up in Abu Dhabi. “Here you’re asked to come up with your personal ideas.”

But what matters most, they say, is getting an American degree. “It means something if I go home to Bangladesh with an American degree,” said Abdul Mukit, a business student. “It doesn’t need to be Harvard. It’s good enough to be just an American degree.”

Whether that degree really reflects George Mason is open to question. None of the faculty members came from George Mason, although that is likely to change next year. The money is not from George Mason, either: Ras al Khaymah bears all the costs.

Nonetheless, Sharon Siverts, the vice president in charge of the campus, said: “What’s George Mason is everything we do. The admissions are done at George Mason, by George Mason standards. The degree programs are Mason programs.”

Thursday, February 07, 2008

Hillary subprimes it

I've heard that students in the U.S. have a new word to use when they fail a test: "I subprimed it."

Senator Clinton subprimes economics.

Senator Hillary Clinton she's got the experience to serve "from day one" if elected president. She's know as the candidate most knowledgable about public policy. She's also got plenty of hubris when it comes to her understanding of economic policy. She wants to abrograte home mortgage contracts when the terms hurt the "homeowner." Richard Thaler and Susan Woodward writing at The National Review take her on:

Senator Clinton's policy amounts to a command-and-control approach to economic policy in which the government announces prices and tells suppliers what to produce. Undertaking such an intervention can only raise interest rates on mortgages (and maybe other interest rates as well) as markets attempt to incorporate risk premiums to cope with possible future interventions. Promising the American people that you can fix things by just lowering their interest rates is dishonest, a fairy tale that won't come true.

Tuesday, February 05, 2008

World Bank: Arab education falling behind

Notwithstanding these successes—and the considerable resources invested in education—reforms have not fully delivered on their promises. In particular, the relationship between education and economic growth has remained weak, the divide between education and employment has not been bridged, and the quality of education continues to be disappointing. Also, the region has not yet caught up with the rest of the world in terms of adult literacy rates and the average years of schooling in the population aged 15 and above. Despite considerable growth in the level of educational attainment, there continues to be an “education gap” with other regions, in absolute terms.

Another:

The education systems did not produce what the markets needed, and the markets were not sufficiently developed to absorb the educated labor force into the most efficient uses. Thus, the region needs to travel a new road.

The new road has two features: the first is a new approach to education reform in which the focus is on incentives and public accountability, besides the education process itself; the other feature concerns closing the gap between the supply of educated individuals and labor demand, both internally and externally.

For example:

In Djibouti, Egypt, Morocco, Oman, Saudi Arabia, the United Arab Emirates, and West Bank and Gaza, more than 70 percent of the students are in the humanities and social sciences. This pattern of enrollment is historically consistent with a policy of absorbing most university graduates into civil service jobs, but is ill suited to a development strategy that draws on private initiatives and dynamic manufacturing and service sectors.

Monday, February 04, 2008

Spiegel interview with Sheikha Lubna

An excerpt of an interview with Sheikha Lubna al- Qasimi niece of the ruler of Sharjah and economics minister of the United Arab Emirates since 2004:

SPIEGEL: What has the boom in the Gulf meant for the Arab world so far?

Lubna: Women as economics ministers for example! I'm not here for decoration. I stand for something -- for growth, for a solid market economy, that things are done properly. That's what we've given the region: know-how.

SPIEGEL: And women benefit more from that than men?

Lubna: They will at least be judged according to their ability and not their gender. Our leadership has a very relaxed, very self-confident attitude toward women.

SPIEGEL: "Change yourself or you'll be changed," Sheikh Mohammed from Dubai warned the Arab world. What did he mean by that?

Lubna: He wanted to call for leadership in the age of globalization -- take risks, be an example, have an influence with the younger generation. Whoever doesn't do that will wash away progress like a tsunami. For example, I came to Sheikh Mohammed's attention because I managed our ports and an Internet platform well. When I was made minister he called me and said: "Congratulations, I have more work for you."

Most likely, the change Applebaum is trying to explain is just something that hasn't actually changed. Instead, part of the Cold War dynamic was that most of the Russians a Westerner might see or interact with were government officials, who tended to be middle aged men rather than attractive young women.

I agree that improved access to the means of aesthetic enhancement will generally lead to enhanced aesthetics, but I'd like to think I'd notice a towering Siberian goddess with or without spike-heeled boots and a layer of L'Oreal.